A Tax Victory for Multinationals

SOURCE: Marie Leone - CFO.com | US | February 12, 2010

The White House drops its proposed reform of "check-the-box" tax rules. Will it pick it up again?

When the Obama Administration released its budget for fiscal 2011 last week, tax executives at U.S. multinationals breathed a sigh of relief. Conspicuously missing from the budget was a controversial proposal to reform the "check-the-box" tax rule, a loophole in the tax code that companies have been exploiting since its creation during the Clinton presidency. According to the Office of Management and Budget, tightening the loophole would have put an extra $87 billion into Treasury Department coffers over the next decade.

The check-the-box rule allows companies simply to mark off several items on an Internal Revenue Service form to declare that their foreign subsidiaries should be treated as disregarded entities, rather than corporations with passive income that is subject to U.S. taxes. The effect is "to make foreign subsidiaries 'disappear' for U.S. tax purposes," said IRS commissioner Douglas Shulman last year.

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